Recency Bias Impacts

Recency bias is the tendency to give greater importance to recent events while ignoring historical context. In trading, this manifests as assuming that the current trend will continue indefinitely, regardless of long-term cycles or fundamental changes.

For example, during a sustained bull market, traders may become convinced that prices will only go up, leading them to ignore signs of an impending correction. This bias is a major contributor to market bubbles and crashes.

To mitigate recency bias, traders should maintain a broader perspective, studying market history and long-term data rather than just the last few days of price action. By grounding their decisions in historical patterns and fundamental analysis, traders can avoid the pitfalls of short-term thinking and make more balanced, long-term decisions.